Equity Revision Guide - Lecture notes 1-24 PDF

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Equity and Trusts Revision Guide Defining Trusts and Equitable Maxims Resulting Trusts Constructive Trusts Three Certainties for the creation of express trusts Formation of Trusts Constitution of Trusts Secret Trusts Charitable Trusts Appointment, Retirement and Removal of Trustees Duties and Powers of Trustees Variation of Trusts Breach of Trust

Introduction to Equity and Trusts In Earl of Oxford’s case [1615] it was held that equity prevailed over common law in the event of a conflict Common – Law – Establishes general rules which provide certainty this allows individuals to plan ahead and promotes commercial efficiency Equity – Acts as a check upon the common law – this remedies hardship which may arise from a strict application of the common law – Equity restrains the full exercise of legal rights where this would be unconscionable 12 ‘high-level’ principles:            

Equity will not suffer a wrong to be without a remedy Equity follows the law Where there is equal equity, the law shall prevail Where the equities are equal, the first in time shall prevail Delay defeats equity – Doctrine of laches – prevents claimant who has delayed from obtaining equitable relief – Limitation Act 1980 He who seeks equity must do equity He who comes to equity must come with clean hands - court will consider past conduct of claimant to decide if it is appropriate for equity to intervene – equitable remedies are discretionary in nature and are granted following a full consideration Equality is equity Equity looks to the intent rather than the form – Link to certainty of intention – looking at the whole circumstance rather than just applying rules – link to constructive trusts Equity looks on as done that which ought to be done – If an equitable remedy can be granted, equity will act as if this has already occurred – Walsh v Lonsdale (1882) Equity imputes an intention to fulfil an obligation Equity acts in personam

*Equity maxims are not fixed rules but starting points*

Settlor (by will or inter vivos)

Trustees (Legal Title)

Holds for

Beneficiaries (Equitable Title)

Resulting Trusts

Trust Law Principles Trustee and Beneficiary are roles; -

T + B can be different people T + B can be the same person, as long as there is also a second B You cannot hold property on trust for yourself alone

Express trusts: these are deliberately created Implied trusts (resulting + constructive): these arise by operation of law o o o o

This means the facts are such that the law has deemed it appropriate to adjust the beneficial interest in a property It is not solely a question of “fairness” or “justice” Based on established tests and requirements Aims to give effect to what the parties intended through their dealings

Resulting Trusts -

A donor or trust settlor transfers property to another but fails to divest himself of his entire beneficial interest His beneficial interest in the property results back to him The recipient becomes a trustee and the donor or trust settlor becomes the beneficiary of his beneficial interest

Vandervell v IRC [1967] A company called Vandervell Products Ltd. He wanted to donate to the Royal College of Surgeons, to establish a chair of pharmacology. He also wanted to avoid paying tax on the donation. At the time, stamp duty applied to outright donations and taxes applied to any income through dividends on company shares. However, since the Royal College of Surgeons was a charity it was not liable to pay tax on any income. Vandervell orally instructed his trust company to transfer 100,000 shares in Vandervell Products Ltd to the Royal College of Surgeons, with an option for the trustees to purchase the shares back for £5000. He then instructed the company to declare a dividend on the shares. So while the shares were in the possession of the Royal College of Surgeons, it paid out £245,000 in dividends up to 1961. Vandervell had hoped this would mean that he would avoid tax (as opposed to simply getting income for himself, on which he would pay tax, and then giving the money to the College). Unfortunately, in 1960, the Inland Revenue made a claim for tax on the transfer. The Inland Revenue argued that Vandervell retained an equitable interest in the shares. They were still his, even though the shares were possessed by the College, he had the option to get them back. They also argued his oral instruction to the trust company was not capable of transferring the equitable interest, because it did not comply with the formality requirements specified in Law of Property Act 1925 section 53(1)(c). This section requires signed writing to evidence the existence of a disposition. So he should be liable to pay tax on the value of those shares. Mere intention to not have a resulting trust does not make it so.

Presumed Resulting Trusts

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B provides money for T to buy property Property legally owned by T Presumption that B wants a beneficial interest in the property Also called a purchase price resulting trust

Dyer v Dyer [1788] – Established doctrine of equity court that resulted trust may be rebutted by circumstances in evidence -

The money forwarded has to go toward property purchase Any other contribution don’t give rise to a RT – Burns v Burns Contribution to mortgage payments only if agreed at point of purchase if later it does not count as an RT but as a CT – Curley v Parks [2004] Contribution to extension, renovations, repairs can only lead to a CT Quantification – B gets a beneficial interest proportionate to the value B put in – Winkworth v Edward Barron Development Co Ltd [1986]

Automatic Resulting Trusts

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S tries to dispose of his property by transferring it to T, but fails to satisfy all legal requirements; T holds property on RT for S If S does not comply with all legal requirements to create an express trust – the trust fails (void) T cannot be allowed to keep the property (was not intended for him) – T holds it on an automatic RT for S It is said that the property reverts/results back to S

The automatic RT is said to be based on intention. S intends to benefit B – not T. If the trust fails, T cannot keep the property – it must return to S. •

Abbott Trust Fund [1900] 2 Ch 326 – money was collected for the benefit of two ladies – who were “deaf and dumb” – on the ladies’ death there was still money in the fund – could not belong to the trustees – RT for the subscribers

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Re British Red Cross Balkan Fund [1914] 2 Ch 419 – a relief fund was set up for the sick and wounded in the Balkans War (1912-13) – after the War there was a surplus in the Fund – RT to the subscribers “unwilling to leave it for the general purposes of the society”, 421 (Astbury J)

If subscribers to a surplus cannot be found – the trustees not allowed to keep surplus – thus property goes to crown – Bona Vacantia

The Presumption of Advancement -

Where B contribute to the purchase price, the law presumes that B wants a beneficial interest, it was not a gift In some circumstances, the law presumes that the contribution was a gift Only applies for gifts between; father to his children and a husband to his wife Presumption that any transfers are gifts thus no beneficial interest Presumption can be rebutted by evidence

Constructive Trusts Fiduciary Duties

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A fiduciary is someone who stands in a position of “trust and confidence”

Key case is Bristol & West Building Society v Mothew [1998] Ch 1;

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The core fiduciary duty is loyalty – it has been defined as: F must act in good faith F must not make an unauthorised profit from their position F must not have a conflict of interest (ie must put B’s interest ahead of their own) F must not benefit a third-party without B’s informed consent

Constructive Trusts - Paragon Finance plc - Arises by operation of law – when circumstances are – unconscionable – for the property owner to assert his own beneficial interest – denying the beneficial interest of another - CT designed to counteract unconscionable outcomes – where it would be wrong to deny B a beneficial interest in T’s property

Westdeutsche Landesbank Girozentrale v Islington LBC [1996] 1. Equity operates on the conscience of the owner of the legal interest – the conscience of the legal owner requires him to carry out the purposes for which the property was vested in him 2. Cannot be trustee of property if and so long as he is ignorant of facts alleged to affect conscience 3. There must be identifiable trust property 4. Once trust established – from that date – beneficiary has proprietary interest

CTs following breach of Fiduciary Duty • • • • •

If a fiduciary misappropriates (steals) fiduciary property - Keech v Sandford (1726) Sel Cas Ch 61; 25 ER 223 Eg: a trustee managing a trust fund (such as a pension fund) might take money out of the trust account and spend it on personal things If a fiduciary makes unauthorised profits - FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, [2015] AC 250 Eg: a company director might be bribed into making a particular decision Here, the misappropriated money or the bribe money is held on CT back to the beneficiaries

CTs as independent Claims • • •

Estate contract - Lysaght v Edwards (1876) 2 Ch D 499 – vendor holds freehold estate on CT for the purchaser following the exchange of contracts pending completion and registration (remember Land Law) Theft – Westdeutsche – a thief holds stolen property on CT for the victim Mistaken payments - Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 – a recipient of money mistakenly paid to them holds it on CT back to the transferor

Common Intention Constructive Trust

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A wife could get a beneficial interest in the house under a CICT if she had detrimentally relied on a promise from the husband that she would obtain that interest If the relationship breaks down, the cohabitant is not protected by the Matrimonial Causes Act 1973

Jones v Kernott [2011] UKSC 53, [2012] 1 AC 776

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Jones and Kernott were in a relationship and jointly bought a house 20% deposit paid by Jones, remainder on joint mortgage Kernott moved out – Jones now paid mortgage on her own, all household expenses on her own, and the cost of raising their two children The starting point is a equitable joint tenancy (equal split if house sold) Looking at the whole course of dealings, Kernott had spent less on the house, paid very little by way of child support, and could afford to buy his own place because he paid nothing on the joint property Implied common intention to change the beneficial ownership: Jones 90% and Kernott 10%

Graham-York v York [2015] EWCA Civ 72, [2015] HLR 26 • • •

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Ms Graham-York and Mr York were in a relationship between 1976 and Mr York’s death in 2009. They were not married and had children. They lived in a house owned by Mr York alone. After Mr York’s death, Ms Graham-York failed to keep up with the mortgage repayments – she had little income – the bank applied for possession – Ms Graham-York claimed a beneficial interest under a CICT and sought a financial share from the sale of the property Ms Graham-York earned some £30,000 in total over the years, beyond that “there is no evidence of substantial financial contribution by Miss Graham-York to the joint expenditure of the home. She did however cook the family meals; and jointly with Norton York, looked after and brought up their daughter Ilona.” – [10] The judge awarded Ms Graham-York a 25% interest based on the above contributions, which the judge called a “generous estimate” Ms Graham-York appealed, claiming she should have a 50% interest The appeal was dismissed

It turns on the party’s dealings with the property in question – not their dealings as between themselves - This is important to remember when discussing the constructive trust’s role to prevent unconscionable outcomes - English CT is institutional, it arises based on the facts - It is arguable (but not certain) that a different outcome could be reached under a more flexible remedial CT, where the court would have discretion to tailor the remedy Proprietary Estoppel

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Equitable claim B can receive a beneficial interest where; o o o

Owner has made promise or assurance to B that B will receive the property B has in reasonable manner acted in reliance on that promises In doing so, B suffered detriment

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CICT: Claim + Remedy - PE: Claim Remedies after a successful PE claim: a constructive trust, equitable compensation, other proprietary interest (easement, covenant, lease) The PE CT is surely remedial! The court has discretion whether or not to grant it

*The aim of proprietary estoppel is preventing an unconscionable outcome* *If B has detrimentally relied on a promise that B would obtain D’s property, it would be unconscionable for D to thereafter deny B that interest* Key Cases; Thorner v Major [2009] 1 WLR 776 – T worked on uncle’s farm for no pay – described as integral to the farm’s success – awarded the farm and uncle’s business property – not uncle’s personal estate Suggitt v Suggitt [2012] EWCA Civ 1140 – C worked on D’s farm for no pay – received lodging and living expenses – excluded from D’s will – PE claim successful for farmland + farmhouse where C lived Davies v Davies [2014] EWCA Civ 568 – C worked on parent’s farm – often left after arguments but came back – gave up paid employment elsewhere – entitled to a share of the property when parents tried to evict her – see [2016] EWCA Civ 463 CICT: Commercial Context Threshold is higher as equity expects more from commercial parties – their dealings should be formal and comply with legal requirements In particular – commercial parties have access to legal/professional advice which private individuals might not reasonably be expected to access Geary v Rankine [2012] EWCA Civ 555 • • • • • •

G and R in a relationship. R bought a guesthouse in Hastings as a commercial investment – R soon moved to Hastings to run the guesthouse House was in R’s name alone – R paid the full purchase price G gave up her job in London and moved to Hastings – worked unpaid in guesthouse – got an irregular allowance R refused to make G co-owner whilst G was married to her first husband – kept refusing even after G divorced R and G’s relationship broke down G claimed a CICT over the guesthouse

Single owner case: G had to prove a common intention that she was to get a proprietary interest On the facts, R never had an intention to share the property At best, an intention to run the business together – this was separate from the actual ownership of the house, [21] (Lewison LJ) As such, G’s detriment related to the business, not the property itself Matchmove Ltd v Dowding [2016] EWCA Civ 1233, [2017] 1 WLR 749 • CICT:Company owned land as part of a property investment • D entered into negotiations to buy the land – an informal agreement reached – D paid part of the deposit • Company changed its mind – tried to return the deposit to D • D refused and instead claimed a CICT in the land

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Held, the company held the land on CICT for D; there had been detrimental reliance on the common intention that D obtain the land from the Company

PE: Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; [2008] 1 WLR 1752 • • • • • • • • •

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C was a property developer. Ms Lisle-Mainwaring owned Y. Y owned a block of flats LM and C entered an informal deal (not in writing, as required for property dealings, s. 2 Law of Property (Miscellaneous Provisions) Act 1989) If C could, at C’s own expense, obtain planning permission for redevelopment, Y would sell him the property at an agreed price – when C sold the property after redevelopment, Y would get a piece of the profit LM claimed she gave C a deadline to obtain planning permission C obtained planning permission after the deadline had passed LM knew that C was still working on the deal after the deadline – she gave him some assistance When planning permission was granted, LM reneged on the deal – citing the deadline - she would do the redevelopment herself C claimed PE: sought a proprietary interest in the property because of his detrimental reliance on the deal House of Lords rejected his claim: transactional certainty was pivotal in commercial property dealings – as experienced property developers, the deal should have been in writing (as the law expects) – both sides had access to professional and legal advice throughout C obtained financial compensation for the work he had done

Pallant v Morgan Constructive Trust

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A form of common intention CT – it arises based on the shared intention of the parties Used after joint ventures to acquire property

Pallant v Morgan [1953] Ch 43 • • • • • • • • • • •

P was a leaseholder on the Blackdown estate – M owned the neighbouring freehold estate Blackdown was up for sale at a property auction – P and M both concerned that a future freehold owner would commercially fell trees at Blackdown P and M had a mutual interest in buying Blackdown Concern: if both bid at the auction, the price would go up – potentially neither would be able to afford it P and M (or rather, their respective agents) had vague negotiations M should bid, P should abstain, and if M was successful, P would be able to buy an agreed portion of Blackdown from M M was successful but refused to sell any portion of Blackdown to P M argued that their negotiations had not been sufficiently concluded P sued Held, (1), the negotiations did not form a binding contract (contracts for land must be in writing, s.2 LP(MP)A 1989) Held, (2), P had been induced not to bid and thus had been prevented from a fair chance of buying Blackdown – M had obtained a benefit in being able to buy Blackdown at a lower price (because there was no bidding war) – M held the agreed portion on CT for P, subject to P paying M the price agreed in their negotiations

Quistclose Trust Where A forwards money to B, with the clear intention that B can only use that money for a specified purpose, B holds the money on a resulting trust for A, and has a limited power to apply the money only to that specified purpose. It must be clear that B does not have free use of the money The money must not become part of B’s general assets – in general, the money should be kept segregated in a separate bank account A resulting trust arises in favour of A, because A did not intend to benefit B – B only got the money to use it for the specified purpose Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 • Rolls Razor Ltd was in financial trouble • Sir Isaac Wolfson agreed to lend it money on the condition that Rolls Razor elsewhere raise money to pay an already agreed upon shareholder dividend • The director of Rolls Razor, John Bloom, ran an investment company – Quistclose Investments – Quistclose raised the money needed for the shareholder dividend - £209,000 • Quistclose transferred that money to Barclays – the bank used by Rolls Razor – it was put in a dedicated account (the No4 Account) • Rolls Razor went into Liquidation • Barclays seized the money in the account and use it to offset RR’s debts • Quistclose brought claim to get money back Held, allowing the claim, Quistclose had forwarded the money with a specific purpose in mind: for Rolls Razor to pay a shareholder dividend. The money could not be used for any other purpose. Importantly, the money was held in the separate No4 Account.

The Three Certainties *Every trust except for charitable trusts must satisfy the three certainties* Knight v Knight 1840 Lord Langdale Certainty of Intention Unequivocal and irrevoca...